Which of the following would cause the price level to rise and output to fall in the short run?
A)an increase in the money supply
B)a decrease in the money supply
C)an adverse supply shock
D)a favorable supply shock

Question

Quizplus · Accepted Answer

An adverse supply shock would cause a decrease in aggregate supply, leading to higher prices and lower output. An increase in the money supply would lead to an increase in aggregate demand, causing output to increase and prices to rise in the short run. A decrease in the money supply would lead to a decrease in aggregate demand, causing output to decrease and prices to fall in the short run. A favorable supply shock would cause an increase in aggregate supply, leading to lower prices and higher output.

Which of the Following Would Cause the Price Level to Rise